Articles Tagged with Claren Road Asset Management

shutterstock_111649130The investment attorneys of Gana Weinstein LLP are investigating potential recovery options for investors in the Franklin High Income Fund. The Fund invests in high-yield debt and securities. However, according to a Morningstar analysis the fund declined 9.7% through November 2015, making it one of the worst performers in the high-yield bond fund Morningstar tracks.

An analysis of the Franklin Fund’s woes reveals that there may be more investor pain in the future for the fund. The fund is struggling due to the 2015 sell-off in commodities and energy sectors. The Fund has taken an outsized position in this industry and these assets make up 22% of total portfolio as of October 2015. According to Morningstar, the Franklin Fund’s investment team is not afraid to make big bets in troubled names and may continue to add to its positions. If the bonds bounce back, returns are boosted. But this strategy is not suitable for most investors and can pressure the performance of the fund. In addition, these risks are heightened due to the lack of liquidity for many energy related high yield bonds. Once a position is established it may be difficult for the Fund to back out later.

In addition, the portfolio may appear less risky to investors when looking at the credit quality of its holdings but as was the case in the lead up to the 2008 financial crisis, the ratings are misleading. For example, the Franklin Fund held a 17.2% position in bonds rated CCC or lower and under 1% in unrated bonds. However, according to Morningstar, only 15% of the energy sector holdings are rated CCC or below even though the majority of energy bonds are trading at distressed level pricing and reflecting greater credit risk. Thus, a larger portion of the fund is trading at very distressed levels then would appear by just looking at the credit ratings alone.

shutterstock_154554782The investment attorneys of Gana Weinstein LLP are investigating potential recovery options for investors in the Claren Road Asset Management LLC fund (Claren Road), managed by Carlyle Group LP (Carlyle Group). According to sources, the global long / short hedge fund, has faced a flood of investors heading for the exit doors causing the firm to issue IOUs and promises of partial redemptions. In total the fund that once had assets under management of $8.5 billion has lost the confidence of the vast majority of its clients having lost all but $1.25 of the former amount. The fund is run in part out of London by Martin Bercetche.

According to news sources, the hedge fund invested in corporate debt and credit derivatives had an unusual short bias by betting that bond prices would fall and interest rates would rise. The fund’s large exposure to bankruptcy troubled entities Fannie Mae and Freddie Mac has hurt the portfolio. The funds losses may be caused by having the right idea at the wrong time. Interest rate rises in the U.S. might have not occurred in 2015 as the investments needed.

The fund’s withdrawal woes began to be reported in July 2015 by the Wall Street Journal reporting that the consultant, Cliffwater LLC recommended that its clients with about $800 million invested in Claren Road comprising at that time 14% of Claren Road’s total assets under management bale on the fund. From the article, the reason for the recommendation wasn’t clear although it was noted that Claren Road’s flagship fund lost 10%.

shutterstock_190371512The investment attorneys of Gana Weinstein LLP are investigating potential recovery options for investors in the Stone Lion Capital Partners (Stone Lion). According to the Wall Street Journal, Stone Lion suspended redemptions in its credit high yield related hedge funds after many investors sought to redeem their investments. Stone Lion was founded in 2008 by Gregory Hanley and Alan Mintz. The fund is now facing heavy losses on distressed junk bonds, post reorganization equities, and other specialized investments. According to Stone Lion, suspending redemptions was the only way to ensure fair and equitable treatment for the fund’s investors. In addition, Stone Lion manages several funds including another fund that has bet on Puerto Rico debt that also bears watching as the island continues to default on its debts.

Stone Lion’s fund freeze follows several others in the high yield space that our firm is tracking including the Third Avenue Focused Credit Fund and Claren Road Asset Management LLC. The recent closures are nearly unprecedented in the hedge-fund industry since the end of the financial crisis and shows the difficulty facing traders looking to sell risky and hard to value positions.

Stone Lion’s hedge funds are down about 7% through the end of July. At that time the fund cut off prospective investors from receiving updates. Since that time the funds have continued to suffer significant losses and documents examined by the Wall Street Journal indicate the funds manage 24% less now than from July 2015.